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tv   The Communicators  CSPAN  July 11, 2011 8:00am-8:30am EDT

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>> members resume debate on a nonbinding resolution expressing a sense of the senate that households everybodying more than $1 million -- earning more than $1 million make a more meaningful contribution to the federal deficit. live coverage here on c-span2. >> this week on "the communicators," a discussion on a recent report from the fcc that looks at competition in the wireless industry. joining us to discuss the
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results are christopher guttman-mccabe of the wireless association and matt wood of the consumer group, free press. >> host: well, the federal communications commission recently issued its congressionally-mandated annual report on competition in the wireless industry. this is the 15th annual report. that's our topic this week on "the communicators." here's the conclusion of the federal communications commission. the 15th report makes no formal finding as to whether there is or is not -- >> host: well, joining us to discuss this issue is matt wood of the policy group free press. he's their policy director.
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and chris guttman-mccabe of ctia, the wireless association. he's the vice president. gentlemen, thank you very much. matt wood, as soon as this report came out free press issued a statement saying that the wireless industry is not competitive. why? >> guest: we think it's not effectively competitive because we have two dominant companies, verizon wireless and at&t taking in more profits and revenues than anyone else, and there are other players around the edges, but we think there are too many structural entries by these competitive options that consumers should have better access to and that the consumers don't reap the benefits of having multiple providers because we have two such dominant players controlling such a large portion of the industry. >> host: matt wood, what do you thinksome. >> guest: we think there's enough evidence to prove that the fcc did a good job this presenting all the complex data and analysis they're talking
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about. it is a complicated picture, but the evidence points to a single conclusion which is there is not enough competition between the big two and other providers and, of course, that ultimately hurts consumers if their competitive options are limited and if they don't have as many options as they might especially for truly high-end plans for the most popular devices. if they're funneled into one provider or another that keep competitors out of that picture. >> host: we want to hear from chris guttman-mccabe, also, of the wireless industry. what's your cob collusion about the -- conclusion about the wireless industry itself? >> guest: so not surprisingly i disagree with matt. i think by any measure it's an effectively competitive industry. i think if you look at the number of options that consumers have, i think that the report says that 90% of americans have access to five or more facilities-based competitors. that doesn't take into consideration the numerous
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resellers that are out there. i think if you look at whether it's the price per minute or the average bill, the average bill is half of what it was in 1987, you know, around the beginning of the industry. and if you think what is being delivered to consumers, the fact that the bill has been cut in half is pretty staggering, and it continues to go down every quarter, every year it goes down no matter whether it's the bureau of labor statistics measuring it or anyone. so, you know, you can look at marketing and advertising. three of our largest providers are among the top ten advertisers in the countriment you can look at innovation. you can look at capital expenditures. i mean, everything suggests that this is an industry that really goes to battle with each other over serving consumers. so we were, um, you know, we, obviously, would have liked the conclusion that it was effectively competitive, and yet we are happy that the commission has begun to look at this wireless industry as an ecosystem. it's a term we coined about a
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year and a half ago, two years ago looking at the wireless space and believe that it is an ecosystem. it's a growing sort of ecosystem. but from the pure perspective of drawing a competitive or not competitive, we just can't see how one could conclude this is not an effectively competitive. >> host: mr. guttman-mccabe, how much of the data did ctia provide to the fcc for this report? >> guest: sure. so throughout the year we will make filings to the fcc, you know, probably a fair percentage of the information in the report comes from ctia. and yet over -- i've been there for ten years now. over the last ten years, the commission has used more and more of its own independent or third party data. the reality is, the majority of data we provide to the commission is not ctia generated. it's actually third party data we've generated whether it's bank of america, merrill lynch or other organizations.
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we tend to find it and present it to the fcc as sort of independent data. that which does come specifically from ctia is part of a semiannual survey we've been doing for about 20 years now that is submitted by members and pieced together before it even makes its way to cti automobile accident. >> host: matt wood, does that effect the quality of the data with ctia providing it? >> guest: we havewe've often sat the fcc should do more independent analysis and also go out and subpoena people. get the data from industry that is proprietary, that is not readily shared. the fcc doesn't need to put that out there, they need to do a better job of actually gathering data and not simply relying on what comes to it from third parties and other analysts who might have a stake this the industry or a very easy,
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tailored opinion. >> host: we're pleased to be joined by our regular, paul kirby, who's a senior editor with telecommunications reports. >> host: thanks. let's dig down a little. the report says the index used to measure concentration in the industry was 28-48 by the middle of 2010. that's slightly higher than it was in 2008, but it's nearly 700 points higher than 2003. antitrust authorities, just to give it a sense, usually say 2500 is a market that's highly concentrated. should this be a concern for regulators and consumers? chris, if you want to -- >> guest: sure. well, you're referring to hhi, and hhi measures concentration, not competition. so when we look at hhi numbers, the same report that you're referencing shortly after it gives us numbers suggests that or states that the united states has the second lowest hhi among all the developed world in terms
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of, um, sort of the raw numbers. and so i think you have to look at a market and how it is structured. this is an extremely capital-intensive market. it requires capital expenditures, a significant amount each year. and so you see a marketplace in the united states that differs from those around the world for the positive in terms of how the consumers see it. our, you know, top carriers have a significant less percentage of this market than the top carriers have in every other market on the planet. and so i think if you look at it in terms of, you know, has the number increased? yes, the number has increased, but that's a measure of concentration, not competition. at the same time that that number has increased, the average price and the monthly price to consumers has gone down. so i think we look at it in the context of, you know, that's a number that is, you know, it's a simple calculation. although to be honest with you, i don't quite know how the fcc comes up with those numbers.
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i've tried myself with an economics degree. that's what i used to do for five years before i went to law school, and i can't replicate their numbers. they suggest it's the second lowest on the planet, so -- >> guest: i would agree with chris, but i think the problem is we're not seeing effective competition in terms of carrier conduct. we do have two large, dominant carriers and other large providers as well, and when one raises their prices for text messages, the others follow suit quickly without retribution because there aren't a lot of differently-priced options and plans. when one of them raises early termination fees, for example, that are used to lock people the the -- into their contracts, the others follow suit whether it's on a smartphone or a feature phone or some less data-intensive plan. when one of them goes to a tier of -- tiered pricing plan, we
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quickly see that kind of follow the leader mentality where if one carrier does it and is able to make money for from that, the other carriers follow suit. we think the more concentrated the market is, the less likely we are to see competition. that's, we think, borne out by the conduct that we see and the fact that consumers are more or less stuck with a service plan that they don't necessarily like and yet ant able to get out of because early termination fees that i mentioned, because of an inability to go to the best plan for that particular customer when they've been told by their provider if you want to use a certain kind of phone or pay a penalty for leaving i, you must stay with us for that entire time. >> host: you noted how many carriers americans can choose from. 94 percent of americans have access to four more wireless voice providers, only 68% have access to that many broadband providers. does this mean there's a need for more competition in the
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broadband market? >> guest: i think one thing we have to, i think, make clear for the viewers is this is a report that looks at 2009, okay? so it's not even 2010, and here we are in 2011. so the majority of the data is for 2009, and when you look at what was happening in 2009 with regard to broadband, we were still as an industry moving to 3g and hadn't introduced much in the way of 4g or wimax or lg at that point in time. if you move forward already to where we are now, the united states has 92% of the world's lte subscribers and 77% of the world's wimax subscribers. so we're clearly on the cutting edge of both of those advanced technologies. and you're seeing, you know, again, even in the ten years that i've been at ctia we've moved from analog to second generation or digital technology to third generation to three and a half, to fourth generation depending upon how you define that. i know that's up for debate.
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but the reality is, you know, four sort of wholesale technology changeouts in ten years, you know, i think it's pretty staggering that we are still, you know, within that time frame leading the world in terms of the high-speed networks and the most subscribers on those networks. >> guest: well, i think what chris didn't answer, you asked about how many broadband providers there are available to people on a wireless basis. and while there's really a growing need for wireless services, this is becoming an essential feature for people. more and more people, especially low income people, are not able to have a broadband subscription at home and also a wireless one, so they're choosing that wireless connection. it's becoming more and more of an essential feature that is part of people's lives. and while the demand is growing and the providers are, obviously, growing their overall output, the question that remains unanswered is whether or not we would have lower pricing for consumers if there was more competition. just looking at the number of providers doesn't take in their ability to set a premium price
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that people will be forced to pay or choose to pay if they want access to the iphone or some other fancy handset, and if they want to be able to have the true power of a mobile broadband connection available to them rather than something that is more limited by a small carrier that doesn't have the same kinds of offerings that the largest carriers are able to make available to their customers. >> guest: paul, if i may. two points. the report and facts bear out that the prices aren't high or. they continue to go down. without exception, they continue to go down. whether it's texting prices, matt said, you know, one carrier raises the price of texts, and the others follow. well, the prices are going down. the data prices have halved just in the last 12 months. you know, we've had discussions, peter, i've been with you before on the show, and we've talked about things like the iphone and how everyone had to have the iphone. it's an iconic device, no doubt. and yet now i'm having
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discussions with foreign regulators about, you know, how do they address the fact that the android platform and google is taking a tremendous share of handset sales, and should people be protected against the android platform. and, you know, you look back over what we've said over the last couple years is as quickly as someone controls a market, that quickly they can lose control in this space. and the greatest illustration is a flip phone from motorola raiser go and a half years ago. we've gone through the iphone and android devices to tablets, and we've gone from zero apps to over 1.2 million applications are available now. so this is a market that moves so incredibly quickly that the issues that matt and others at free press complained about, you know, a year ago are already completely overtaken by events. >> host: and, matt, what would you respond to what mr. guttman-mccabe had to say? >> guest: sure. the handsets are changing,
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that's not surprising. also not surprising to us is who is controlling that playing field. the entire vertical distribution chain and value chain as they refer to it science a controlled. even though the iphone is popular and being caught up and passed by the android operating system, verizon and at&t and sprint and t-mobile get the first crack at that device whether it's the razor whether it's the droid, so we see a lot of repeat players involved in that space. the fact that the technology's changing is not surprising, but neither is the fact that you still have these dominant players at the top of that chain controlling that pace of innovation and who has access first to those quites. >> host: -- devices. >> host: we've spent quite a bit of time talking about at&t and verizon. this report is from 2009. matt wood, in this your view if proposed merger between at&t and t-mobile happens, how will that effect competition?
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t-mobile is considered a separate entity in this report. >> guest: it is, and still is a separate entity until such time that deal goes through. we think that would be disastrous because we do have t-mobile as a lower priced option. we talked about the fact that t-mobile and sprint acted as some sort of check on the prices that a, the and, the and verizon could charge. not completely because they didn't have access to the same types of handsets and application that at&t and verizon are able to lock up on an exclusive basis at the outset. but it would be the elimination of a lower priced competitor. t-mobile brought android operating phones to market and consistently offer lower prices than at&t and verizon. we think, obviously, lessening the number of nationwide competitors from be four to three would be a very big disaster for competition in this space. >> host: mr. guttman-mccabe. >> guest: peter, i thoroughly like my job at ctia, so i am going to say the merger is going
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to go through a rigorous process at the department of justice, and i look forward to -- >> host: why don't you tell us what you think, and we won't tell anybody. [laughter] >> host: this is c-span's "communicators" program. we're discussing competition in the wireless industry. we're pleased to be joined by representatives from there the wireless industry chris guttman-mccabe, and from free press, a think tank policy group that looks at these telecommunications issues, matt wood, is the policy director. paul kirby of telecommunications reports, next question. >> host: now, many years this annual report to congress is released, and it doesn't get much attention. this year one reason it does is because of the merger that fcc and justice are considering. groups are trying to use the report saying, look, they do not determine effective competition for the send year in a row. at&t has said even though they
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didn't determine that, we think it shows how many carriers people have choices of. wanted to get your views from the politics standpoint if you think this report will continue to be used, if you will, by the two sides in the merger proceeding. >> guest: i'm sure people will continue to use it. chief in the report, it's an important body of work, but i think more important is the underlying docket and proceedings at the fcc that they look to and what's more important to the ultimate outcome of whether or not the industry remains competitive. whether or not the fcc levels the playing field and make entry and growth by smaller carriers more possible and more profitable for them, possibly. i think the answer on the merger is indicative of the larger problem, they do have members on both sides of the merger with sprint, obviously, vociferously opposing the merger if it goes through. when it comes to these other issues that the fcc is weighing and that are really just a small
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part of the wireless competition report but certainly important in terms of what the fcc can do to change the law, change the regulatory playing field, things like data roaming and interoperability that we spend a lot of time arguing about here in d.c., those are the kinds of places we would like to see more movement and that's where we think a lot of barriers to competition and to entry and growth by smaller providers exists. i think that's more important, ultimately, for the merger and for fcc's overall take on the industry. ctia has a lot of opinions as to whether or not the market is really effectively competitive or not or whether there are large barriers to entry that keep people from competing with the largest carriers. >> host: chris guttman-mccabe, if you would respond to michael copps' statement regarding this
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report, i cannot ignore some of the darkening clouds over this competition -- >> guest: so i think if you look at, you know, with all due respect to commissioner copps, i think if you focus on one specific area, is the hhi as measured by the fcc getting higher, i think the answer's, yes, and you can't deny that. and yet i think if you look at the other 329 pages of the document, you see an industry that is, for all intents and purposes, violently competitive. you see, again, as i've said, prices going down, you see innovation up. if this, if this were not a competitive industry, um, why would there be 21 billion in capital expenditures in '09 and 25 billion in 2010? you know, why would you see prices continue to go down?
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matt talks about sort of new entry. leaping metro during this time period when it was measured went from strong providers to pretty significant, you know, larger providers who are working to try to get a national footprint. during the same time period, clearwire jumped into the market and became a participant. cox decided that it was going to enter the wireless market. comcast worked with some other cable providers to purchase spectrum. so, you know, i look at this, and i say all of those things suggest that there is competition going on. are there barriers? certainly, there are barriers. one of them is that it's extremely capital intensive to enter this market. another one is you can't just make a decision and start. you need spectrum. we've been pushing hard for the last several years, um, the chairman, chairman genachowski, commissioners, the president of the united states mentioned the need to bring spectrum to market in his state of the union address, republicans and democrats in the house and in the senate all have identified
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the need to bring more spectrum to market. i agree with matt, i would love the opportunity for everyone to get as much spectrum as they want and allow them all just to compete without having to worry about infrastructure. so that's key from our perspective. but i think if you, if you want to pick and choose and want to find individual statistics within this report to raise concerns, that's a possibility. but i, i don't think when you look at the entirety of the report there's any way to conclude that there is not effective competition. >> host: paul kirby, next question. >> host: matt, you mentioned something called backhaul. backhaul allows cell sites to be connected, basically, back to the network. and that's a big concern of smaller carriers. their contention is that a, -- at&t and verizon have the backhaul market locked up. they say there are plenty of alternatives, and they're open to reaching agreements. the report talks about backhaul and what's called special access and says that's something that needs to be addressed.
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give us the sense of why you think the backhaul market is a problem, and then if chris wants to address that as well. >> guest: i think we at free press have made this case, but so have sprint and t-mobile before this merger, although they've gotten more quiet, understandably enough, i suppose. i have point today the very high profit margins or, i think sprint called them obscene profits at one point in time that not just at&t and verizon are making, but also the major dominant wire line provider, qwest when sprint was last complaining about this. it's not that there aren't other options, but it is that these competitors are so reliant upon the vertically-integrated at&t and verizon who are wireless providers and can use a lot of what they're using to connect their towers back to the internet and back to the phone network. there are barriers that not just the public interest organizations or people like me have pointed out, but other
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carriers have shown to be a high imagine of the costs they're incurring to compete with those who control a large percentage of that special access supply. >> host: chris, anything? >> guest: i mean, i think this is an area, and there are a couple that matt mentioned that we would hope would be worked out, by, you know, within the industry. when we look at these sorts of issues, our initial hope is if it's an industry issue or if it's an issue that can be worked out among our members, we really try to facilitate that and make that happen to the extent that it can. so, but again, it's something before the commission, and i think rightly so. it's something that the commission should make a determination one way or the other as to what needs to happen. >> host: chris guttman-mccabe, there are about 300 million wireless users, handsets available at this time in the united states. of the prime real estate for such handsets, at&t, verizon --
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according to this report, the wireless report -- control about 80% of that prime real estate when it comes to spectrum. >> guest: uh-huh. >> host: is that something we should be concerned about? does that put a dent in competition? >> guest: so it depends. i would argue no at this moment although, you know, the commission is moving forward to try to bring more spectrum to market. i think, again, if you define spectrum as just being the cellular spectrum, then, yes, at&t and verizon do specifically control that. but i also think the commission has attempted to bring other bands of spectrum to market, and we've pushed specifically to have other bands below 1 gigahertz, this sort of beach front spectrum, to market. the reality is at&t and verizon ended up with that spectrum because that's how the government initially gave it out. since that point in time there has been a move towards auctions and allowing people to participate in auctions.
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and i think, yes, there are definitely some real positives in terms of economies of scale of having the lower spectrum because you can get better propagation characteristics out of it, and that's why we are pushing to reallocate a fair amount of the broadcast spectrum now to allow others to enjoy those benefits. but i do think you have to look at the package as a whole in terms of competition, and it's not just where you have your bands of spectrum, but have you built out, is there a reasonable price for the equipment, is there enough spectrum in those bands that you're gaining some not just united states, but international economies? if you really think about it, when it comes to infrastructure technology almost all the vendors are outside the united states, and they're building their infrastructure technology for, you know, an ecosystem that extends well outside, you know, our borders. so we push in this context to have spectrum that is internationally harmonized so that it drives down the costs, so that when they build technology whether it's for
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sprint or u.s. cellular or at&t or verizon or t-mobile, they're also building that technology for orange or some of the other foreign carriers. and, therefore, driving the costs down. but to me the solution is bring more spectrum. i think matt and i would agree on this pretty strongly, bring more spectrum to market, remove any of the potential barriers from that perspective. if you bring it below one gigahertz, then you're leveling the playing field for everyone who wants to get access to that, and i think that's the right approach. >> guest: we would agree in some respects on that. i think getting more spectrum into the hands of people who can use it is an important thing. chris is right that the cellular licenses were essentially begin to a, the and, the and verizon or at least their predecessors over the years. in the most recent auction below one gigahertz, a, at&t and verin won at auction the largest portion of those licenses, and interestingly enough this point toss another bare -- points to
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another barrier. at&t and verizon have used their technical and economic dominance to look at engineering ways around that competition that might arise in the 700 megahertz band. lack of interoperability so if i'm a small wireless provider and i have a phone that works on my particular license, it might not work on verizon's or at&t's. in addition to having them been given them in the first place, they've found ways to keep people out of their space be in that respect as well. so we see, you know, continued domination by the largest carriers in the auction space. when it comes to getting more tv band spectrum, that's something we certainly talked about as well. i think free press and others have made the case for unlicensed use in that same band making more spectrum available for use but not necessarily by the largest carriers. we see at&t today offloading as much as 40% of iphone traffic
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onto wi-fi networks, and that will be a trend that we think will be continued. to use spectrum and not only more intensively, but also smarter ways to make it uncliensed -- unlicensed, something that is shared and reused more cheaply by innovators that don't necessarily want to have to go through a, the and and, the. >> host: paul kirby, final question. >> host: is there a concern, chris, at ctia that the commerce department is looking at spectrums of 1.7 gigahertz band. however, the defense department and other agencies are using that spectrum. how concerned are you that it will take too long to free that spectrum up, that it might not be within the ten years that ntia which is the agency looking at that would hope to free that up if it decides it can be? >> guest: sure. i think it's important to note that going forward i'm not aware of, i don't think we're ever going to find any greenfield spectrum, spectrum encumbered in some way. the way we look


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